We have identified two genes, smedwi-1 and smedwi-2, expressed in the dividing adult stem cells (neoblasts) of the planarian Schmidtea mediterranea. Both genes encode proteins that belong to the Argonaute/PIWI protein family and that share highest homology with those proteins defined by Drosophila PIWI. RNA interference (RNAi) of smedwi-2 blocks regeneration, even though neoblasts are present, irradiation-sensitive, and capable of proliferating in response to wounding; smedwi-2(RNAi) neoblast progeny migrate to sites of cell turnover but, unlike normal cells, fail at replacing aged tissue. We suggest that SMEDWI-2 functions within dividing neoblasts to support the generation of cells that promote regeneration and homeostasis.